Active Fund Management’s Record

Mar 17, 2015 by

Every small investor should make a point of watching a 3-1/2-minute segment of the March 12, 2015 Nightly Business Report broadcast. The segment of interest begins at exactly the 4:00 mark.

For me, these are the important takeaways:

  • 86% of active fund managers failed to beat the pertinent benchmark index in 2014.
  • 82% of active fund managers underperformed indexes over the past decade.

(Unsaid here is that, while in every year some (14% in 2014) fund managers beat their benchmark index, 0% of fund managers beat their benchmarks consistently year after year.)

  • “It is very difficult to outperform the benchmark over a long-term investment horizon. And these were professional money managers… If they can’t beat the benchmark, what does that mean for the average investor?” [trying to do the same by stock-picking].
  • Even in periods of high volatility like 2001 and 2008 when Wall Street argues that professional stock-pickers actually earn their keep, most fund managers did not beat their benchmark.
  • Wall Street also alleges active fund managers particularly add value in small capitalization, emerging & international markets, and down-trending markets. In reality, over 3, 5, and 10-year horizons, managers in these categories underperformed their benchmark.
  • And this is astonishing: Even if you add back to active funds’ performance the management fee extracted from shareholders’ pockets by professional money managers, active funds still underperformed the benchmarks. Wow. This literally means an average chimpanzee is a better stock picker than the average Wall Street money manager.
fraud alert

Should this be posted at the NYSE?

I have to ask again: Why shouldn’t we regard the entire active fund management industry to be a fraud, if not legally then at least ethically? Why isn’t the SEC advising consumers to invest in low-cost index funds only?

Here’s the reality, folks:

Active manager fund fees crush investment performance. What is passed off on Wall Street as financial analysis is actually pure salesmanship, a self-serving marketing message intended to separate you from your money, not boost your retirement security prospects. It’s bad enough that stocks are far riskier than you probably think (thanks to Wall Street marketing); you’re being duped into paying for fund managers’ yachts and getting negative performance (relative to indexes) in return.

No human being on the planet can consistently beat index fund performance. You certainly can’t, and no Wall Street money manager can.

You will retire with more wealth if you never invest in actively managed funds, period.

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  • squirrelers

    The part of adding back the fees and STILL being no better than throwing darts is one to take note of. This makes the fees all the more unpalatable 🙂 I happen to go with index funds where I can.

    • Yes, I was shocked by that too. I expect active management to perform worse than indexes when fees are taken into account, but worse even with no fees?? Whoa…

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